FTX CEO Sam Bankman-Fried's proposal to establish DeFi standards undermines the industry

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FTX CEO Sam Bankman-Fried's proposal to establish DeFi standards undermines the industry

DeFi startups don't have the resources to meet proposed norms.

Sam Bankman-Fried's proposal to establish crypto industry standards undermines DeFi's entrepreneurship and poses an existential threat to the space's leading DeFi teams and platforms.

On October 19th, Sam Bankman-Fried, CEO of crypto exchange Juggernaut FTX, delivered a groundbreaking and controversial document that details a detailed blueprint for regulatory control and industry standards in the digital asset sector.

In less than 4,000 words, the degen-gone-lobbier managed to perform a 180 degree turn from his unbridled DeFi days to a polished suit-and-tie executive heading a fully compliant centralized exchange.

Bankman-Fried had his own FTX Exchange to retrieve all of the lost alpha from underneath the top DeFi platforms and algorithmic stablecoin issuers, while simultaneously pushing the proverbial rug out from beneath leading DeFi platforms and algorithmic stablecoin issuers.

DeFi is more than contracts and validators.

Bankman-Fried proposed codifying individuals and organizations acting as front-end providers and even website hosts under the umbrella of traditional financial brokerages. He also recommends they be subject to all relevant regulatory policies, including stringent KYC obligations, he said.

This is a stance for a guy who was aggressively farming and draining liquidity pools from prominent DeFi protocols just two years ago. While time does fly in crypto, we can't allow our guiding principles to waver in the face of changing tides.

Bankman-Fried acknowledges a number of DeFi's key components. He congratulated the DeFi community for'maintaining free, decentralized validators and smart contracts' and said they are absolutely crucial for DeFi.

Unfortunately, that appears to be the only element DeFi Bankman-Fried can still support. It makes for a less than-satisfying concession for those who remain in this space to pursue our principles - not power.

This is the challenging task of registering and operating at the top-tier level of a financial institution, as it's expensive, labor-intensive, and resource-intensive.

A small startup team can hardly handle the legal expenses, let alone manage the time and energy required of its top decision-makers. Only the biggest financial institutions can work as broker-dealers and the like, as they can allocate the necessary resources to legal departments and highly specialized professionals. Small firms cannot handle regulatory requirements, making it difficult for them to do so.

What's left in the event that individuals and small teams cannot provide front-ends, run websites, or conduct essential product marketing?

As Bankman-Fried proposed, they the people may contribute code and smart contracts and run validators as a form of free speech.

The legos can be built by individuals and ensure that they run efficiently. As for assembling the legos, determining their use cases, building ecosystems, and connecting with communities - that's for the big chiefs upstairs.

DeFi in name only

1 duty is to remain firm to our values: uncompromising decentralization, censorship resistance, and self-sovereignty.

The SBF's vision for the future appears strangely ignorant - if not outright dismissive - of cryptocurrency's founding principles. He supported tokenized equities and sanctioned on-chain addresses and blocklists, while rejecting USD stablecoins backed by on-chain reserves.

If the FTX CEO persuades the regulatory agencies to accept his ideas, DeFi will be scrapped from its inherent decentralization and censorship resistance, and rendered a skeleton of pseudo-permissionless smart contracts and validators.

By targeting front-end providers and other unlicensed DIYers - you know, the ones that built Maker, Aave, UniSwap, Synthetix, and other Blue-Click platforms that erected a $40 billion DeFi arena from ground zero - such a regulatory model would crush DeFi's original entrepreneurial spirit. DeFi legos would inevitably fall under the authority of CEXs such as FTX. Or worse yet, they could be corralled by larger financial institutions like Blackrock or JPMorgan.

Gone are the days of free-thinkers congregating on communal chat forums to pursue the mission of returning power to the individual. The days of genuine self- ownership will be gone, she said. Gone will be the days of a self-directed, ever-evolving free market for assets and protocols. And certainly, there will be the days of a thriving ecosystem of decentralized financial applications.

As DeFi tools are integrated, then assimilated, then acquired and consumed by the legacy financial system we designed them to replace, DeFi will exist in name only - as a suite of digital native financial tools to optimize process efficiency in traditional finance and cross-border use cases. And ultimately, to serve as the baseline infrastructure for finance in Central Bank Digital Currency systems.

In the end, decentralization comes first or never.

We need to preserve DeFi as an engine of innovation and ingenuity at the heart of cryptocurrency, he said. Of course, it doesn't just mean ensuring a strong consensus remains intact, attracting a decentralized body of validators, and securing trustless bridges between ecosystems. All of them are crucial infrastructure components, and each deserves attention in its own right.

However, if anything has become undeniably evident since October 19, it is that our infrastructure is only as robust as the principles that guide and direct its evolution.

As project leads, we must affirm why we are building what we are building with our teams, frequently connect with our communities to understand their individual needs, and remain dedicated to protecting the former and serving the latter. However, everything is lost, and we are merely creating the next iteration of an inequitable and exploitative financial system - albeit a highly efficient one.